Since education makes a person more likely to leave your region, how do you justify your investment in human capital?

Monday, October 06, 2008

Parochial-Burgh

If there is a talent shortage in Pittsburgh, then why are wages so low? The short answer is that local companies are not struggling to find employees, yet. Harold Miller posts the wage numbers telling the familiar story of low pay:

Are lower wages in Pittsburgh justified because of our lower cost of living? Yes, in part. For example, after adjusting for differences in cost-of-living across regions, nurses’ salaries in Pittsburgh rank 16th among the top 40 regions, rather than 39th. But they’re still 5-8% lower than in places like Cincinnati and Cleveland which have an equal or lower cost of living.

Higher wages in such proximity within the Rust Belt is a head scratcher. I'm still searching for a study that pieces together the entire talent landscape in Pittsburgh and Mr. Miller doesn't discuss why wages are so low. On the other hand, Chris Briem does see a glut of workers:

"Any demand in the region has been internally displaced," says Briem. "The number of colleges is disproportionate to a region our size." (The estimated population of Pittsburgh's metropolitan statistical area is 2.3 million for 2007, down 15% from 2.7 million 1970.)

While Pittsburgh produces plenty of skilled graduates--some of whom have traveled from as far as India and China to attend the city's world-class colleges, including Carnegie Mellon University and University of Pittsburgh--the job market, which today primarily consists of health care and technology positions, simply isn't big enough to provide work for all qualified candidates.

A recent article in the Pittsburgh Tribune-Review about the city's rising young adult population posits what I think is the rest of the low wage narrative:

Kimberly Walkenhorst, one of the seven owners of the coffee house, said a good example of Pittsburgh's attraction is that Google opened a facility here when it couldn't lure enough Carnegie Mellon University graduates to Northern California.

A native of a Detroit suburb, Walkenhorst said Pittsburgh's affordable living costs give creative individuals more leeway in pursuing their dreams while making enough money to cover the necessities. It also has a stronger sense of neighborhood than other urban areas and a charitable nonprofit community interested in improving the city and the world, she said.

"This is my home now. I don't want to leave," Walkenhorst said.

Pittsburgh has certain intangible assets that compliment the low cost of living, which partly mitigates low wages. However, someone from Detroit to choosing Pittsburgh over Cleveland or Cincinnati is important to understand because those two Ohio cities should offer a better salary at a comparable cost of living. Network migration will explain some of this error in our economic model. But the sense of place that Pittsburgh engenders, helps keep the area awash in talent.

People are willing to take less money for the same job not simply because of a low cost of living. The more significant Pittsburgh difference is the high quality of living. Going further out on a limb, the natives seem less inclined to leave the region. If I could figure out how to measure it, I predict that Pittsburgh companies benefit from a relatively captive labor market. I figure that the geographic legacy of industrialization remains relatively strong and that even intra-regional migration of workers is surprisingly weak.